Inflation rises more than forecast

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Inflation ticked up slightly more than expected in July, the Office for National Statistics said, as banks raised fees and retailers had slashed prices in summer sales already in June.

Further price increases have been expected by the Bank of England, which sees inflation peaking later this year at five per cent before falling back below its two per cent target within the next two years.

Nevertheless, high inflation poses a major obstacle for the central bank should it want to pump more money into the economy to boost the fragile recovery.

Consumer prices were unchanged on the month in July, taking the annual inflation rate to 4.4 per cent.

Analysts had expected the annual rate to edge up to 4.3 per cent from 4.2 per cent in June, predicting that some of the impact of early discounting by retailers, which led to a surprise slowdown in inflation in June, would unwind.

Core inflation, which strips out volatile components such as food or energy, accelerated to 3.1 per cent from 2.8 per cent.

As inflation is running well above the Bank's target, the Bank's governor Mervyn King is obliged to write an explanatory letter to Chancellor George Osborne.

The retail price inflation gauge, which includes more housing costs and is the benchmark for many wage deals, stood at 5.0 percent, in line with forecasts.

The ONS said that higher fees for financial services were among the main drivers of inflation.

In addition, there was less discounting for clothes, shoes, furniture and household products than usual because many retailers had brought summer sales forward to June.

The year-on-year price increase for clothing and footwear stood at 3.1 per cent, the highest rate since records began in January 1997.

The recent weakness of the economy has triggered speculation that the Bank may engage in a fresh round of quantitative easing. However, so far only one of the nine members of the Monetary Policy Committee has voted for additional asset purchases.